After reviewing the Sydney Auction Results, it looks like we could be at the beginning of a slowdown for Sydney’s massively strong property market, after low clearance rates and a downturn in prices recently. Recently we also analysed Melbourne’s auction results, which revealed that the market is still strong there, but a downturn could be on the cards also for Melbourne.
Sydney recorded a 73.6% clearance rate over the weekend, dropping from last week’s bumper 80.3% rate and listings were also down. This is not the first low result Sydney has recorded lately, and may be an indicator that demand is beginning to slacken.
|Same weekend 2016||Last week||This week (May 6)|
|Listed auctions (Saturday)||526||651||458|
On the other hand, it’s not unusual to see clearance rates drop in the week before the Budget announcement as both sellers and buyers wait to see what’s in store. Considering that, the weekend’s weak results could be a blip in the market, leading up to the May 3 Budget.
Still, if that’s the case here, we might see a bounce back this weekend, but I think ultimately we’re looking at a long-term reduction in clearance rates over the next quarter.
There’s a few reasons why – mainly, the effect of interest rate hikes and tightened regulations are beginning to make themselves felt and could have investors treading cautiously.
Rate hikes and regulations tend to be slow to affect the market, but we’ve been seeing investment loan rates go up since December last year, and with the introduction of a bank levy in the Budget this week, which the major banks have more or less said will be passed onto customers, there are likely more increases to come.
Foreign investors were also hit by some of the Budget’s tax reforms, in particular, the “ghost house tax” which could mean fees starting around $5,000 for foreign investors who leave their properties vacant. Foreign investors have also been limited to 50% of new development purchases, and this could have a big impact on clearance rates in the future.
And APRA haven’t ruled out further restrictions after clamping down on interest-only lending at the end of March, so further tightening from that side could be on the cards as well if they don’t see the result they want from the Sydney market.
So it wouldn’t be surprising if, looking forward to the next quarter, local investors are a little more careful with their wallets, foreign investors drop off and we see clearance rates start to plateau or drop. But I think it’s too early to say the market is on a permanent downswing – barring any major shake-ups in lending or government regulations, I think investors could have their confidence back up and demand could rise again by August.
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